Statement I: If, at the reporting date, the credit risk of a receivable has not increased significantly since initial recognition, interest revenue is calculated based on the amortized cost of the financial asset. Statement II: 12-month expected credit losses is determined for financial asset which credit risk has not increased significantly since initial recognition Statement III: Lifetime expected credit losses is the weighted average of credit losses with the respective risks of a default occurring as the weights. a. All statements are correct b. 2 out of 3 statements are incorrect c. 1 out of 3 statements are incorrect d. All statements are incorrect

Statement I: If, at the reporting date, the credit risk of a receivable has not increased significantly since initial recognition, interest revenue is calculated based on the amortized cost of the financial asset. Statement II: 12-month expected credit losses is determined for financial asset which credit risk has not increased significantly since initial recognition Statement III: Lifetime expected credit losses is the weighted average of credit losses with the respective risks of a default occurring as the weights. a. All statements are correct b. 2 out of 3 statements are incorrect c. 1 out of 3 statements are incorrect d. All statements are incorrect

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter5: Risk Analysis

Section: Chapter Questions

Problem 14PC: Refer to the financial state-ment data for Abercrombie Fitch in Problem 4.25 in Chapter 4. Exhibit...

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True or False 1. if a credit risk has not increased significantly since initial recognition, an entity may recognize a loss allowance equal to 12-month expected credit loss 2. the effect of direct origination cost is a decrease in the effective interest rate of a loan receivable 3. The impairment model under IFRS 9 are applicable to all debt instrument including those that are measured at fair value through profit or loss 4. the impairment model under IFRS 9 are applicable to all debt instruments including those that are measured at fair value through profit or loss 5.
1. An entity determines that the credit risk on a loan receivable has not increased significantly since initial recognition. The entity should recognize loss allowance equal to a. the 12-month expected credit losses on the instrument. b. the lifetime expected credit losses on the instrument. c. sum of a and b d. none; credit losses should be recognized only when there is objective evidence of a loss event.
Which of the following statements is incorrect concerning the expected credit loss model of PFRS 9? The expected credit loss model applies to all financial instruments within the scope of PFRS 9, debt and equity alike. A credit loss may be recognized on the initial recognition of a debt instrument. The measurement of loss allowance is zthe same in ‘Stages 2 and 3.’ Credit losses equal to “12-month expected credit losses” may be recognized on debt instruments acquired that were issued by entities having a high credit rating.
2.Which of the following statements is valid? a. Net accounts receivable is not affected by a recovery of an account previously written off. b. A three year, non-interest bearing promissory note is initially recorded in the accounts at its face value. c. When individual customers' accounts have credit balances of material amounts, these amounts must be deducted from the debit balance in other customers' accounts in the statement of financial position. d. When the rate stated on a note is greater than the prevailing market rate of interest for similar obligations, the present value of the note at initial recognition is greater than its face value.
1. All of the following statements are true regarding Credit Risk, except: a. Credit Risk is the risk that the borrower may not be able to repay its obligation. b. Credit risk is included in the valuation as a factor to determine the cost of lending or financing using debt. c. Credit Risk affects the valuation of Accounts Receivable. d. All of the statements are true.2. Honesty Company paid P985,221.67 for a 90-day treasury bill with an interest rate of 6% (assume 360 days).How much should Honesty receive at maturity date?
True or False 1. if a credit risk has not increased significantly since initial recognition, an entity may recognize a loss allowance equal to 12-month expected credit loss2. the effect of direct origination cost is a decrease in the effective interest rate of a loan receivable3. The impairment model under IFRS 9 are applicable to all debt instrument including those that are measured at fair value through profit or loss4. the impairment model under IFRS 9 are applicable to all debt instruments including those that are measured at fair value through profit or loss5. The recoverable amount of a credit-impaired financial asset (but not purchased or originated credit impaired or variable rate loan) is computed as the present value of the remaining cash flows from the instrument discounted at the current rate at the reporting date
1. Which of the following note shall be discounted to get the initial measurement? A. Interest bearing note due in 3 years B. Note due in 12 months C. Non-interest bearing note due in 3 years D. Note due in 6 months 2 Which is true concerning the presentation of receivables in the statement of financial position? A. Non-trade receivable is presented as a non-current asset B. Only trade accounts receivable and trade notes receivable shall be presented as "Trade and Other Receivable" C. Trade and Non-trade Receivables are shown separately in line with materiality and aggregation principle D. Trade and Non-Trade Receivables which are currently collectible shall be presented as one line item called "Trade and Other Trade receivables"
Credit risk refers to: Question 10 options: Risk from reclassification of the creditworthiness of the borrower Risk from a change to the interest rate on a loan Risk of a change to the repayment schedule of a loan Risk of a change to the maturity of a credit
21 Details for one of the loan of BB Company that is probably impaired during the period is as follows: The company made a loan of P40,000,000 to a customer with similar credit risk to BB Company on January 1, 2021. Interest is receivable on this loan at the end of each year at 2% per annum for the next five years. The loan was properly recorded and classified as amortized cost. The company made and initial assessment of the loan and the total expected credit losses over the life of the loan was P1,000,000. The discount rate applicable was at 2%. On January 1, 2021, the probability of default over the next 12 months was 5%. At December 31, 2021, there was a significant increase in the credit risk on the loan made by BB Company, the expert assessed that the total expected credit losses over the life of the loan was increase to P2,200,000. The discount rate applicable was at 2%. How much is the balance of the allowance for credit losses as of December 31, 2021?
Apply derecognition criteria of IFRS 9 and U.S. GAAP to Company B’s situation below: Company B sells a portfolio of 100 short-term receivables to a bank for cash by guaranteeing to buy back first 20 defaulted receivables at the amount due from the debtors. The historical default rates on such receivables are up to 10%. The customers are notified of the sale and pay directly to the bank. The bank may subsequently sell or pledge these receivables. Under IFRS, should Company B derecognize this portfolio of short-term receivables? Why? Under U.S. GAAP, should Company B derecognize this portfolio of short-term receivables? Why?
Refer to the financial state-ment data for Abercrombie Fitch in Problem 4.25 in Chapter 4. Exhibit 5.16 presents risk ratios for Abercrombie Fitch for fiscal Year 3 and Year 4. Exhibit 5.16 REQUIRED a. Compute the amounts of these ratios for fiscal Year 5. b. Assess the changes in the short-term liquidity risk of Abercrombie Fitch between fiscal Year 3 and fiscal Year 5 and the level of that risk at the end of fiscal Year 5. c. Assess the changes in the long-term solvency risk of Abercrombie Fitch between fiscal Year 3 and fiscal Year 5 and the level of that risk at the end of fiscal Year 5.
. Lean Corporation provided the following information regarding its Notes Receivable as at December 31, 2021. NOTE GROSS CARRYING AMOUNT LIFETIME EXPECTED CREDIT LOSSES 12-MONTH EXPECTED CREDIT LOSSES CREDIT RISK ASSESSMENT A P 3,000,000 P 300,000 P 50,000 Low credit risk B 2,000,000 400,000 40,000 31 days past due C 1,000,000 500,000 60,000 Credit-impaired The loss allowance that the entity should recognize as at December 31, 2021 is A. P 590,000 B. P 900,000 B. P 950,000 C. P 1,200,000